This information is for educational purposes only and does not constitute tax, legal, or financial advice. HSA eligibility rules can be complex and individual circumstances vary. Consult with a qualified tax professional, financial advisor, or the IRS for guidance specific to your situation.
Health Savings Accounts (HSAs) are tax-advantaged accounts designed to pay for qualified medical expenses as defined by the IRS. For families paying assisted living costs on behalf of a loved one, understanding those rules has real financial impact. According to the most recent Genworth Cost of Care Survey, the median cost of assisted living in the U.S. now exceeds $6,300 per month, or more than $75,000 per year1, and the majority of those costs are paid out of pocket by family members.
That financial pressure is exactly why payors need clarity. When monthly assisted living bills combine medical care, personal services, and living expenses into a single charge, it becomes difficult to tell what may qualify for HSA reimbursement. Having clear statements and payment records, whether managed manually or through an online payment portal tool like TransactCare, can make it easier to track expenses and retain documentation when reimbursement questions arise.
Here’s the core rule to keep in mind: HSA funds can be used tax-free to pay for qualified medical care or to reimburse yourself after paying out of pocket. Assisted living itself is generally considered room and board, which is not automatically eligible. Only the portion of costs tied directly to medically necessary care may qualify. The rest of this guide breaks down what’s typically covered, what’s not, and the simplest way to evaluate an expense without getting buried in IRS language.
Quick Check: Is Your Expense Covered?
If you are trying to figure out whether an assisted living expense can be paid or reimbursed using Health Savings Account funds, skip the long lists and use this simple 3-question check instead.
Question 1: Is your expense for medical care or for everyday living?
- Covered: Expenses related to treating, managing, or monitoring a medical condition.
- Not Covered: Expenses related to housing, meals, convenience, and lifestyle services.
Question 2: Would a doctor reasonably say the expense is medically necessary?
- Covered: Expenses ordered, prescribed, or supported by a healthcare provider tied to a diagnosis, treatment plan, or chronic condition. A Letter of Medical Necessity (LMN) is typically required.
- Not Covered: If no medical justification exists, it is usually not covered.
Question 3: Can your expense be clearly separated from room and board?
- Covered: Itemized and specific dollar amounts related to the medically necessary expense(s) along with proof of payment.
- Not Covered: If bundled into a general monthly fee, reimbursement is unlikely.
What You Need for Reimbursement:
- Letter of Medical Necessity (LMN): Written by a licensed healthcare provider, this letter should explain why the assisted living care or expense is a direct medical need, not just convenience. While the IRS doesn’t explicitly require an LMN for all qualified medical expenses, it is strongly recommended, especially for assisted living care, to substantiate that expenses are medically necessary rather than personal preference.
- Itemized Statement or Invoice: The bill must distinguish qualified medical care charges and services from room, board, and other non-medical charges. Without this, HSA administrators may deny reimbursement.
- Proof of Payment: Whether you paid by credit card or check, keep receipts showing you actually paid the qualified portion.
What’s NOT Covered:
- Personal Care Not Medically Necessary
- Most standard health insurance premiums
- Medicare supplemental policies
- Assisted living service plans
- Room and Board
- Meals & Dining Services
- Personal Convenience & Lifestyle Services
- Social & Recreational Activities
- Housekeeping & Maintenance
- Transportation Not Directly Tied to Medical Care
- Housekeeping
Assisted living sits in a gray area between healthcare and housing, but the IRS does not treat it that way. From a tax perspective, assisted living is primarily a living arrangement, not a medical service. Only the portion of costs that are directly tied to medically necessary care, such as skilled nursing services or personal care required due to chronic illness, may potentially be reimbursable.
In practice, that means eligibility depends less on where care happens and more on what the care is, why it’s needed, and how it’s documented and billed.
Example Expenses Covered by Your HSA:
In assisted living, coverage is rarely all-or-nothing. Eligibility usually depends on medical necessity, documentation by qualified providers, and whether charges are clearly separated from room and board. The examples below reflect the categories most commonly encountered by families paying for senior living care:
Medical Care and Treatment
Medical care and treatment expenses form the foundation of HSA eligibility. Under IRS guidance, these are costs incurred to diagnose, treat, mitigate, cure, or prevent illness or disease. In senior living, these services often occur alongside daily living support, which is why itemization is critical.
Physician and Clinical Services
Many assisted living residents continue to receive routine and specialized medical care while living in the community.
Common examples include:
- Primary care physician visits
- Specialist visits such as cardiology, neurology, oncology, or dermatology
- Geriatric care physician services
- Nurse practitioner and physician assistant visits
- In-home physician visits when medically necessary
These services are generally eligible when billed as medical care and not bundled into a general service fee.
Hospital and Facility-Based Care
According to Medicare data, older adults are significantly more likely to require hospital-based services, even while residing in assisted living. These costs often remain eligible when incurred separately from housing.
Examples include:
- Hospital stays and inpatient care
- Outpatient procedures
- Same-day surgeries
- Observation stays
- Skilled nursing services provided in medical settings
- Rehabilitation services in hospitals or rehab facilities
Because these services often involve multiple providers and billing sources, having centralized access to statements and payment records, whether managed independently or through payment portal tools like TransactCare, can make documentation easier to retrieve later.
Surgical, Emergency, and Diagnostic Services
Unexpected medical events are common among older adults, and emergency or diagnostic care is frequently one of the largest out-of-pocket expenses families face.
Eligible examples may include:
- Surgical services and anesthesia
- Pre-operative evaluations and post-operative follow-up care
- Emergency room and urgent care visits
- Ambulance and emergency medical transport
- Diagnostic testing, lab work, and pathology services
- Imaging such as X-rays, MRIs, CT scans, ultrasounds, and PET scans
- Preventive screenings not fully covered by insurance
These expenses are typically eligible when clearly tied to medical treatment and supported by documentation.
Therapeutic, Behavioral, Dental, and Vision Care
Ongoing therapy and behavioral health support are common in assisted living populations, especially following illness, injury, or cognitive decline.
Examples include:
- Physical, occupational, and speech therapy
- Cardiac and pulmonary rehabilitation
- Psychiatric care and counseling
- Substance abuse treatment
- Inpatient or outpatient mental health services
- Dental care such as exams, cleanings, fillings, dentures, and oral surgery
- Vision care including eye exams, prescription glasses, contact lenses, and laser eye surgery
These services often span multiple providers, which is why consistent payment tracking and access to receipts can be helpful during reimbursement review.
Prescription and Certain OTC Medications
Medication management is a core component of assisted living care. In many communities, medications are administered or overseen by staff, rather than purchased directly by the resident or family. Prescription medications are generally HSA-eligible when prescribed by a licensed provider and used to treat a medical condition.
Common Prescription Medications in Senior Living
- Cardiovascular medications
- Diabetes medications, including insulin
- Respiratory medications for conditions like COPD or asthma
- Arthritis and chronic pain medications
- Osteoporosis and thyroid medications
- Dementia, Parkinson’s, and seizure medications
- Mental health and behavioral medications
- Antibiotics, antivirals, and antifungals
- Gastrointestinal and metabolic medications
- Injectable, infusion, and biologic medications
In assisted living, eligibility often depends on how medication-related charges appear on billing statements and whether they are itemized separately from general care fees, which is why payors benefit from payment portal tools like TransactCare (which is integrated with PointClickCareTM) that provide clear, electronic statements and accessible billing records.
Over-the-Counter Medications (CARES Act)
The CARES Act expanded HSA eligibility to include many over-the-counter medications when used to treat or prevent a medical condition (IRS Publication 502).
Examples commonly seen in senior living include:
- Pain relievers and arthritis medications
- Cold, flu, and allergy medications
- Digestive aids and acid reflux treatments
- Anti-nausea and motion sickness medications
- First-aid supplies used in care
- Sunscreen with SPF 15+ and broad-spectrum protection
- Menstrual care products when applicable
As with prescription medications, documentation and proof of payment matter, especially when OTC items are managed by the community, and having centralized access to payment records through platforms like TransactCare can simplify reimbursement review.
Medical Equipment and Supplies
Medical equipment includes devices and supplies that are medically necessary to treat or manage health conditions. These items are common in assisted living and are often required on an ongoing basis.
Examples may include:
- Wheelchairs and walkers
- Crutches and canes
- Hospital beds and bed rails
- CPAP machines and sleep apnea supplies
- Oxygen equipment
- Blood glucose monitors and test strips
- Blood pressure monitors
- Nebulizers
- Wound care supplies
- Thermometers
- Hearing aids and batteries
These expenses are typically eligible when prescribed or recommended by a healthcare provider and billed separately from housing costs.
Medically Necessary Care Services (Terms Apply)
This is one of the most misunderstood areas of HSA eligibility in assisted living. Care services may qualify only when they are medically necessary and properly documented.
Potentially Covered Care Services
- Skilled nursing care
- Medication administration
- Assistance with activities of daily living (ADLs) such as bathing, dressing, or mobility when tied to a medical condition
- Supervision required due to cognitive impairment
- Physical, occupational, and speech therapy
- Chiropractic services
- Mental health services from licensed providers
Documentation Typically Required
- A Letter of Medical Necessity from a healthcare provider
- Clear diagnosis and treatment rationale
- Duration of care
- Itemized billing separating medical care from non-medical services
Because these services are often bundled into assisted living care packages, access to detailed statements and payment records is especially important for reimbursement review.
Long-Term Care Insurance Premiums
While most health insurance premiums (including employer plans and Medigap/Medicare supplement plans) cannot be paid with HSA funds, there are specific exceptions under IRS rules that apply to HSAs. HSAs let you use account funds for certain premiums without tax or penalty, including qualified long-term care insurance and other types of coverage in limited situations.
Here are the situations where an HSA can be used for premium expenses:
- Qualified long-term care insurance premiums, up to IRS age-based limits (shown below)
- COBRA health coverage
- Medicare premiums for individuals age 65 and older (excluding Medigap policies)
These insurance premiums are not eligible for reimbursement under an FSA; the exception applies only to HSAs.
IRS Long-Term Care Premium Limits
When using HSA funds for qualified long-term care insurance premiums, the IRS imposes annual limits based on your age. These limits apply per covered individual and are updated periodically. For example, for the 2025 tax year:
- Age 40 or under: up to $480
- Age 41 to 50: up to $900
- Age 51 to 60: up to $1,800
- Age 61 to 70: up to $4,810
- Age 71 or older: up to $6,020
These figures are based on the IRS’s eligible long-term care premium limit table for 2025 and adjust annually. If you have a qualified long-term care insurance policy for your loved one, often used to help cover costs associated with chronic care needs, you can use HSA funds to pay those premiums within the IRS’s age-based limit. That’s a useful strategy when planning how to fund ongoing care beyond day-to-day expenses.
Other Premiums You Can Pay With HSA Funds
In addition to long-term care insurance, HSA funds may be used for other types of premiums in specific situations:
- COBRA coverage: If you lose employer-sponsored health coverage and elect COBRA continuation, HSA funds can cover these premiums. (Source: IRS)
- Medicare premiums: After age 65, HSA funds can cover Medicare Part A, Part B, Part D, and Medicare Advantage plan premiums (but not Medigap/supplemental premiums). (Source: IRS)
Important Notes
- Unlike FSAs, HSA funds roll over year after year and can be used well into retirement, which is one reason many families use HSAs as part of long-term care planning.
- You must still retain documentation and proof of payment for these premiums, as with all qualified medical expenses.
- Using HSA funds to pay insurance premiums only makes sense when the expenses are eligible and you have sufficient balance after covering other qualified medical costs.
If you Remember Nothing Else…
The bottom line is simple: assisted living itself is not automatically HSA eligible, but medically necessary care within assisted living may be. Eligibility depends on clear documentation, itemized billing, and proof of payment. For payors managing ongoing senior living expenses, this is where the process often breaks down. Platforms like TransactCare help bring clarity to that process by providing secure, digital access to statements, payment history, and receipts, making it easier to understand how charges are presented and to retain the records needed when reimbursement questions arise.
